FX Majors rangy, stocks bounce back ahead of FOMC
On Tuesday, markets were trading sideways to lower on back of Brexit concerns and the important Fed meeting, taking place this evening. DAX has hit our first target from our Orderbook in our weekly update.
Market participants have scaled back the expectation of a rate hike in light of the recent US employment report, which missed expectations by a mile. US stocks traded lower for a fourth day in a row with the S&P (down 0.2%) taking out the 50-day SMA and in FX markets, EURUSD closed below the 100-day SMA. In the risk averse market, spot gold enjoyed another positive day – the fifth in a row – testing 1290 and getting closer to key resistance at 1305.
On the macro front, British inflation figures came out lower than expected and the GBP took another hit on back of this coupled with Brexit concerns. Cable lost more than a figure in yesterday’s trading session, but has bounced back this morning on back of better than expected unemployment figures, where the unemployment rate surprisingly fell to 5.0% from 5.1% expected. Also Average Earnings came out higher than expected which adds to the inflationary pressure.
From the US, Retail Sales came out better than expected and shows that the consumers in the US are still spending well, which should be positive for the rebound in growth figures.
This morning, sentiment has increased slightly and markets are eyeing a dovish tone from the FOMC tonight. Equities are trading in green in Europe following a decent session in Asia, where stocks opened in negative, but finished the session in positive.
We have a string of figures ahead of the FOMC at 20CET, but we expect especially the US Dollar to be rangy pre the release. US PPI and NY Empire will be out at 1430CET, where markets are expecting more or less unchanged PPI and an increase in the NY Empire to -4 from -9.02 in May. US May Industrial Production and Manufacturing Production will be out at 1515CET, and consensus is for a slight slowdown compared to April on back of data showing a decline in production data.
Today we also have the weekly oil inventories at 1630CET, where a draw of 2.260M is expected. Oil has recently been trading lower on back of the rising USD and have declined the past four days. Should we see a build in inventories, the likelihood is that the black gold will continue recent downtrend.
At 20CET, the major event of today will take place with the FOMC releasing interest rates and forecasts. We expect the rates to be unchanged and potentially a downgrade of the labour market conditions in light of the recent employment report, but overall the statement should show positive comments on the US economy. Since early May, the CitiFX Economic Surprise index for the US dollar has improved, which means that the data has been better than analyst forecasts. On the forecasts and projections, we do not expect any major changes. We would prefer buying on dips in EURUSD towards 1.1180.
Have a nice day
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